Securities Market Module 2

 Credit rating, also known as security rating is a symbolic

opinion of the rating agency regarding the relative ability and
willingness of the issuer of a financial (debt) instrument to
meet the debt service obligations as and when they arise
 Credit rating is governed by the SEBI (Credit Rating
Agencies) Regulations, 1999.
 The Regulations cover rating of securities only and not rating
of fixed deposits, foreign exchange, country ratings, real
estates etc.
 Public financial institutions.
 Scheduled commercial banks.
 Foreign banks operating in India with the approval of RBI.
 foreign credit rating agencies recognized in the country of
their incorporation, having at least five years experience in
rating.
 Any company or a body corporate having continuous net
worth of minimum Rs.100 crore for the previous five years.
 A minimum net worth of Rs. 5 crore.
 No Chairman, Director or Employee of the promoters shall be
Chairman, Director or Employee of CRA or its rating
committee.
 A security issued by its promoter.
 securities issued by any borrower, subsidiary, an associate promoter
of CRA, if there are common Chairman, Directors and Employees
between the CRA or its rating committee and these entities.
 A security issued by its associate or subsidiary if the CRA or its
rating committee has a Chairman, Director or Employee who is also
a Chairman, Director or Employee of any such entity.
 An obligation has been cast on the issuer to disclose in the
offer documents all the ratings it has got during the previous
3 years for any of its listed securities.
 CRAs would have to carry out periodic reviews of the ratings
given during the lifetime of the rated instrument.
 As per SEBI mandate, all new IPOs are compulsorily traded
in dematerialized form.
 Dematerialisation of securities is a prerequisite for making a
public or rights issue or an offer for sale.
 The investors have the option of either subscribing to
securities in physical form or dematerialized form.
 The Companies Act, 1956 requires that every public listed
company making IPO of any security for Rs.10 crore or more
shall issue the same only in dematerialized form.
 The sale of securities to a relatively small number of select
investors as a way of raising capital.
 Investors involved in private placements are usually large
banks, mutual funds, insurance companies and pension
funds.
 In Private placement (or non-public offering) is a funding
round of securities which are sold not through a public
offering, but rather through a private offering, mostly to a
small number of chosen investors.
 The private placement involves issue of securities, debt or
equity, to a limited number of subscribers, such as banks, FIs,
MFs and high net worth individuals.

 It is arranged through a merchant/investment banker, who

acts as an agent of the issuer and brings together the issuer
and the investor(s).

 These are allotted to a few sophisticated and experienced

investors, the public at large does not have much stake in it.
 What distinguishes private placement from public issues is –
Public Issues invite application from as many subscribers as
possible, the subscriptions in the private placement are
normally restricted to a limited number.
 In terms of the Companies Act, 1956, offer of securities to
more than 50 persons is deemed to be public issue.